A Looming Diesel Crisis: Uncovering the Hidden Threat to Global Trade
The World's Economic Balance is Shifting, and No One's Talking About It
We're witnessing the early signs of a global shift: countries are increasingly at odds, political divides are widening, and Trump's demands are raising eyebrows. But here's the real issue: a worldwide shortage of diesel and jet fuel is quietly reshaping international trade, and it's a problem most people are missing.
The Silent Crisis: Diesel and Jet Fuel Shortages
International trade, as a percentage of GDP, has been relatively stable since 2008, but this stability masks a deeper issue. The world is facing a shortage of diesel and jet fuel, which are crucial for long-distance trade. This shortage is forcing international trade into a downward spiral, and it's a trend that's set to continue.
Understanding the World Economy: A Different Perspective
The world economy is a complex beast, and it operates under the laws of physics. It's a dissipative structure, which means it needs to 'dissipate' energy to stay alive, much like a living organism. Most researchers, however, model only tiny parts of this vast economy, leading to narrow and often misleading conclusions.
The Nature of Dissipative Structures
Dissipative structures, like ecosystems and the human body, thrive on a specific mix of resources. If an ecosystem lacks sunlight or water, it adapts by shifting towards plants and animals that can survive with the available resources. Similarly, if a human lacks food, their body adjusts by becoming thinner. This principle applies to our economy too: a shortage of diesel and jet fuel will force a transition, akin to an ecosystem adapting to a new resource mix.
The Ivory Tower Problem
Academic researchers, often working in isolation, have created models based on their narrow perspectives. These models assume that energy is easily substitutable and that higher prices will solve supply issues. But the real world is more complex. Just as we can't survive on kale alone, the world economy can't function without a diverse energy mix. If the top-level energy sources are disrupted, the entire system will change.
The Crucial Role of Diesel and Jet Fuel
Diesel and jet fuel are essential for international transport. They are energy-dense, easy to store, and compatible with existing infrastructure. These fuels power our global trade, from agricultural equipment to heavy trucks, and they're also vital for building and maintaining our infrastructure, from roads to power plants.
The Hidden Dependency on Diesel
Diesel is not just for international transport; it's essential for food production and local transport too. Most agricultural equipment runs on diesel, and it's the fuel of choice for heavy trucks delivering goods, including food, locally. Diesel is also crucial for constructing and maintaining our physical world, from roads and bridges to commercial buildings and factories.
The Challenge of Rising Diesel Prices
The price of diesel is a delicate balance. If it rises, food prices tend to follow, which is politically sensitive. Voters don't take kindly to high food prices, so even with a low diesel supply, the price doesn't always reflect this. Instead, oil prices, including diesel and jet fuel, tend to fluctuate wildly, as seen in Figure 2.
The Problem with Heavy Oil
Diesel and jet fuel often come from heavy oil, which is difficult and expensive to extract and refine. Heavy oil is hard to transport, often requiring heating or dilution, and it contains impurities that need to be removed, adding to the costs. These higher costs are not easily passed on to consumers, especially in food production and transport, where high prices are unpopular.
The Unattractive Prospect of Heavy Oil Extraction
The pricing issues with heavy oil make it unattractive for oil companies to extract. The Energy Return on Energy Invested (EROEI) is low, meaning a lot of energy is needed to extract heavy oil, making it an expensive process. This low profitability means governments can't charge high taxes on heavy oil production, or the companies will stop producing altogether. This leads to economic and social issues in countries with heavy oil reserves, like Venezuela.
The Misleading Oil Data
The data we receive from various agencies doesn't reveal the true nature of the world's oil problem. While the total oil production seems to be rising, as shown in Figure 3, this is a combination of different types of oil. The per capita oil consumption, when divided by world population, shows a flatter trend, and in fact, per capita oil supply has been declining recently. The mix of products from oil extraction has also been getting lighter over time, with the majority of growth coming from light oil, particularly tight oil from shale in the US.
The Impact on World Trade
The growth pattern of diesel supply provides insight into the issues with world trade. Diesel, which makes up the majority of the Diesel+Jet Fuel grouping, has seen a restriction in supply since around 2008. This corresponds with the flattening of world international trade, as shown in Figure 1. Several factors contributed to this drop in per capita diesel supply:
- There was relatively more oil in the Heavy Group before 2008, which could be refined into Diesel+Jet Fuel. The Heavy Group includes lubricants, waxes, asphalt, and bunker fuel for ships.
- Hydrocracking, a technique to transform long hydrocarbon molecules into shorter ones, is expensive and requires a high selling price of crude oil to be profitable.
- Price differentials discourage the development of heavy oil fields, as refineries offer lower prices for heavy oil.
- Depletion of oil supplies means the remaining oil is more expensive to extract and transport, leading to higher food costs.
- Political issues, such as low profitability of heavy oil extraction, lead to economic and social unrest in countries like Venezuela and Russia.
A New World Order
The world economic order seems to be in flux, breaking apart to form a new order that can function with the changing availability of Diesel+Jet Fuel. It's like a game of musical chairs: as the music stops, some players will be left without a chair, and the game will continue with fewer participants. Similarly, our economy needs to regroup, with some businesses and governments failing to make way for others. Supply lines will need to be rearranged, and customs and beliefs may need to change.
The Changing Dynamics of International Relations
In the era of growing international trade, cooperation was key. But now, as we enter a phase of tearing down and rebuilding, we can expect assertive leaders and increased conflict. This is the strained situation we're facing today.
The Uncertain Future
No one can predict the future with certainty, but the self-organizing world economy is shaping its own destiny. There are other shortages the world economy must navigate, such as fresh water and critical minerals for high-tech societies. China controls the majority of these critical minerals, so countries must either produce their own or maintain good relations with China.
The Limits of AI and the Need for Local Production
With these shortages, the expansion of AI is limited, as it needs to become more energy-efficient. The world is being forced to source more manufactured output locally and reduce the transportation of goods across oceans. Tariffs seem to be a way of achieving this change.
Trump's Policies and the Underlying Problems
Some of Trump's policies make sense in light of the world's current issues. A replacement leader would likely face the same challenges, with different strange policies, but the underlying problems are structural. The new leader would also face difficulties in addressing today's problems.
Waiting for Solutions
We must wait for the self-organizing economic system to find a solution. Innovations may bring new ways of doing things that can work around these difficulties, but in the near term, higher levels of conflict due to resource shortages seem inevitable.
